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Schroders weather forecast: mixed outlook for bonds – March 2015

09/03/2015

Philippe Lespinard

Co-Head of Fixed Income

Philippe Lespinard forecasts a mixed outlook for bond markets across the globe.

European bonds – Forecast: Sunshine

The sun is shining on the European bond markets. It is still an environment where economic growth is subdued, inflation is very low - close to zero - and we are still in an environment where fiscal policy has to adapt to the new reality. Lastly, the European Central Bank is launching an asset purchase programme which should provide support for the bond market as it will buy vast amounts of government bonds every month.

US bonds – Forecast: Rain

We are less positive in the US, where economic growth is much stronger. The labour market is tightening visibly with the unemployment rate falling to 6% or even forecast to fall below, and while inflation is subdued the fall in oil price is helping consumers. Meanwhile, the Federal Reserve is looking to normalise interest rates in the spring pushing rates towards the 2% mark.

Emerging markets debt – Forecast: Overcast

Energy-producing countries are being hampered by the fall in energy prices, but others such as India and Indonesia are finding it beneficial. Expect a blend of weather conditions for the rest of the world in 2015.

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The outlook for global equities in 2015 is finely balanced. While a strong US recovery and falling oil prices are supportive of global equity performance, concerns in Europe and emerging economies like Brazil may weigh on sentiment.